Calculating Your Income Tax Liability 2008-09

The income tax which is charged to you is based on the tax slabs declared by the Government in its annual budget every year. The following table encapsulates the tax slabs applicable this year. (Financial Year 2008-2009 )

Taxable Income Slab	Tax Slab
Upto Rs. 1,50,000 Up to Rs. 1,80,000 (for women) Up to Rs. 2,25,000 (for residents, 65 years or above)	Nil
Rs. 1,50,000 – Rs. 2,50,000	10%
Rs. 2,50,001 – Rs. 5,00,000	20%
Rs. 5,00,001 – Rs. 10,00,000	30%
Above Rs. 10,00,001	30% + 10% surcharge on tax
Note: In addition, an education cess of 3% is charged on the entire tax amount including surcharge

Please note that the taxable income is arrived at after adding all your different sources of income and subtracting the deductions that you have taken advantage of under Section 80.

Lets take a few examples to illustrate how you can calculate taxes based on these slabs.

Example 1:
Sarla is a salaried employee, her annual income is Rs. 2,40,000. She has made no tax savings investments during the year.
Let us calculate her income tax liability.

Heads		Amounts
Gross Total Income		Rs. 240,000
Deductions		Nil
Taxable Income		Rs. 240,000
Income Tax Calculations		Tax
Tax on Income upto Rs 180,000	0%	Zero
Tax on the remaining Rs 60,000	10%	Rs.6,000
Total Income Tax Due		Rs. 6,000
Educational Cess @ 3%		Rs. 180
Total Tax Payable		Rs. 6,180

Example 2:
Vinod is a salaried employee. His annual income is Rs. 3,25,000.His home loan interest payment is Rs 1,20,000 and his home loan principal repayment is Rs. 80,000.He has made an investment of Rs. 50,000 in NSC.
Let us calculate Vinod's interest liability.

Heads		Amounts
Income from Salary		Rs. 325,000
Income from House Property (Section 24 Deduction for Home loan interest repayment)		Rs.120,000
Gross Total Income		Rs. 205,000
Section 80 C Deductions		Rs.100,000
NSC Investment	Rs. 50,000
Home Loan Principal Repayment	Rs.80,000
Total	Rs. 130,000
Taxable Income		105,000
Total Tax Due		Rs. 0

Example 3:
Ram is a salaried employee who earned Rs.12,00,000. He has bought a health insurance policy for himself worth Rs 10,000. Ram has also bought ELSS funds for Rs. 80,000 and has also paid a LIC premium of Rs. 20,000.He has also donated Rs. 20,000 to the Prime Minister's Relief Fund.
Let us calculate Ram's tax liability.

Heads		Amounts
Gross Total Income		Rs. 1,200,000
Section 80 C Deductions		Rs.100,000
LIC Premium	Rs. 20,000
Home Loan Principal Repayment	Rs. 80,000
Total	Rs. 100,000
Other Donations		Rs. 30,000
Section 80D Health Insuance Premium	Rs. 10,000
Section 80G Donation To A Charity	Rs. 20,000
Total Taxable Income		1,070,000
Income Tax Calculations		Tax
Tax on Income upto Rs 150,000	0%	Zero
Tax on the next Rs 100,000 (Slab 150,001 to 250,000)	10%	Rs.10,000
Tax on the next Rs 250,000 (Slab Rs. 250,001 to Rs. 500,000)	20%	Rs.50,000
Tax on the Tax on next Rs. 570,000 (above 500,001)	30%	Rs. 171,000
Income Tax Due		Rs. 231,000
Surcharge on total tax (Surcharge is applicable if the taxable income is above Rs.1,000,000)	10%	Rs. 23,100
Income Tax Due		Rs. 254,100
Educational Cess @ 3%		Rs.7,623
Total Tax Payable		Rs.261,723

Regards
Praveen Kumar
www.laymansfinance.blogspot.com

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